House Sharply Weakens Windfall Oil Profits Bill

By John M. BerryJune 29, 1979

The House of Representatives, in a striking departure from its recent sock-it-to-the-oil-companies rhetoric, sharply weakened the "windfall" oil profits tax bill yesterday before passing it and sending it to the Senate.

By 236 to 183, the House adopted a substitute to lower the tax rate from 70 percent to 60 percent and end the taxes on oil production entirely in 1990.

The Ways and Means Committee had toughened President Carter's recommended tax significantly before sending the measure to the floor. It had raised the tax rate from Carter's proposed 50 percent to 70 percent and made more of the tax permanent.

Voting for the substitute were 90 Democrats and 146 Republicians.

Backers of the substitute, including the principal sponsors, Rep. James R. Jones (D-Okla.) and Rep. W. Henson Moore (R-La.), argued that it would lead to twice as great an increase in domestic oil production as would the committee version.

Jones and Moore also claimed that their substitute was tougher than Carter's bill, saying that it would take in an estimated $23.3 billion over the next five years, compared with $21.2 billion. The Ways and Means measure would have raised an estimated $28 billion through 1984.

But a key element of the administration's proposed profits tax was what has come to be called the "OPEC tax." This would have imposed the tax on newly discovered oil and "stripper well oil" as its price rises, with Organization of Petroleum Exporting Countries prices, above $16 a barrel, plus a quarterly inflation adjustment.

The administration wanted a permanent "OPEC tax." Under the Housepassed bill, however, it would end abruptly in 1990. The tax burden of oil companies after that would be billions of dollars less a year than under the administration plan.

In many ways, the bill the House approved follows the lines suggested by Mobil Oil Corp. a few weeks ago. Mobil recommended focusing the tax on oil now being produced but exempting newly discovered oil and oil from so-called "stripper wells" producing less than 10 barrels a day.

Carter proposed the tax last April as part of his plan to decontrol prices of all domestically produced oil by Setember 1981. As selling prices rise to world market levels, part of the resulting windfall would be captured by government.

The proceeds of the tax are supposed to go into an energy trust fund to finance energy research and development and some rebates to the poor. However, legislation creating the fund and setting its spending targets are to be considered later.

The Jones-Moore substitute also weakened the taxes on production from marginal wells and from wells using expensive tertiary recovery techniques, such as injecting steam to force out the oil.

The substitute was proposed, Jones said, because those two types of wells, along with newly discovered oil, offer "the best chances of increasing our domestic oil base."

Ways and Means Committee Chairman Al Ullman (D-Ore.) called the substitute a "major change" that would mean billions more for the oil companies.

Besides the tax on newly discovered and stripper oil, the bill would tax the difference between selling prices and what the controlled price of oil would have been if there were no decontrol.

The tax on lower tier oil - oil from wells found before 1973 - would end in 1984.

The tax on upper tier oil - oil found since 1973 - would begin to phase out in 1985, ending in 1990. The Ways and Means Committee had also sought to make this part of the tax, as well as the OPEC tax, permanent, whereas the administration favored a phaseout of the upper tier tax. The taxes would become effective on Jan. 1, 1980.